News from the Associated Press on May 20 (Editor Xiao Xiang) The global bond market is expected to record the strongest month in the year, and the stock indexes of various countries have hit record highs. For investors in the global market, although it has only been less than three weeks since May, the performance of the global stock and bond market has undoubtedly surprised people enough.
Behind this, people's optimistic expectation that the global interest rate cut cycle will be completely kicked off may have contributed a lot
Some insiders said that, After the US core CPI data fell for the first time in six months last week, the global government bond market is expected to have its best monthly performance this year, while the MSCI global stock index hit a new record high last Friday. In the United States, the data has encouraged people to bet that the Federal Reserve will cut interest rates soon, while in other countries, it is also reassuring investors that their central banks will have enough room to cut interest rates.
In fact, June this year is likely to become a key window for the global market to change, and many major global central banks are expected to officially embark on the journey of interest rate reduction at this mid year node.
As mentioned in the latest report released by Nomura Securities last week, What is "less appreciated" at the moment is that the global interest rate cut cycle has actually begun In addition, an unusual situation has emerged, that is, non US central banks have more appropriate domestic economic conditions to achieve decoupling from the policies of the Federal Reserve.
Rob Subbaraman and Yiru Chen, strategists of Nomura Securities, said in the latest economic insight report that they expected that by the end of June, the European Central Bank, the Swiss Central Bank, the Bank of Canada and the Bank of Thailand would cut interest rates, and many other central banks would take a dovish stance.
According to Nomura's prediction, the European Central Bank, which started to cut interest rates in June, will cut interest rates by 25 basis points four times in 2024, and the deposit mechanism interest rate will fall to 3% at the end of the year.
Nomura strategist wrote, "With the acceleration of the global interest rate cutting cycle, the cross-border comparison of core CPI, the recession risk indicator, the Sahm Rule, and the actual policy interest rate... highlights how some central banks are slower than other central banks in terms of the timing of interest rate cuts. Of course, there are other factors to consider, such as fiscal stance and financial stability risks."
The Sam rule was first proposed by Claude Sam, an economist of the Federal Reserve. According to her observation, when the average unemployment rate in three months rose by 0.5 percentage points from the low point in the previous 12 months, the economy will enter recession or will enter recession soon. This rule is more reliable than some known financial market indicators that send wrong signals. The St. Louis Federal Reserve has already added the "Sam's Rule recession indicator" to its huge Federal Reserve economic data system FRED.
"From these three indicators, it seems that the time for the Bank of Canada to start cutting interest rates is ripe, as is the case with the Federal Reserve of New Zealand and the Bank of South Africa. The real interest rates in Brazil and Mexico are still very high, and with the expansion of the global interest rate cutting cycle, they seem to have a lot of room to cut interest rates," Subbaraman and Chen wrote.
As for the US Federal Reserve's interest rate cut window, Nomura's estimate is also ahead of the market mainstream (interest rate cut in September).
Nomura Securities said that the global interest rate cutting cycle is accelerating, and the Federal Reserve may cut interest rates in July and again in December. As the core CPI of the US slowed down in April, and more and more evidence showed that the US economy was slowing down, their confidence in the US Federal Reserve's interest rate cut in July was rising.
Interestingly, in recent trading days, an almost hyperactive mood has rippled across the global market: The price of US Treasuries has soared all the way, and the yield of 10-year treasury bonds has fallen more than 30 basis points from the high point so far this year. From New York to London to Tokyo, if there is one similarity between the stock markets of these developed countries, it is that they are either on the way to a new high or on the way to a new high.
The next focus of the global anti inflation campaign
Judging from the latest pricing in the interest rate market, the current pricing in the UK interest rate market suggests that the probability of the Bank of England cutting interest rates by 25 basis points next month is about 50%, and it is expected to cut interest rates twice this year. In the United States, traders believe that the possibility of the Federal Reserve cutting interest rates in September is about 75%. In Europe, swap pricing shows that the ECB's interest rate cut in June is almost certain.
Some insiders said that after the US CPI showed a downward trend last week, the next focus of the global macro level this week may turn to the UK's inflation report. Although prices in the UK have slowed down significantly since the end of 2022 (when CPI peaked at 11.1%), some investors warned that the downward path of inflation may not be smooth.
Judging from the median estimate of the media survey, the year-on-year growth of the UK's April CPI released on Wednesday may slow down from 3.2% to 2.1%, which is only a marginal difference from the Bank of England's official target of 2%. If the data meets expectations, it will undoubtedly be the latest good news of the global anti inflation campaign. However, if the inflation data is higher than expected, traders may give up their recent bet that the Bank of England will cut interest rates in June as soon as possible, and re question whether global investors are "self indulgent" in cutting interest rates.
Mark Dowding, chief investment officer of RBC BlueBay Asset Management, said, "The UK CPI data next week will be very important, and we think its decline may be lower than many people's expectations. This may put the enthusiasm for interest rate cuts on hold more."
As of last Friday, the yield of the benchmark 10-year government bond of the United Kingdom had fallen for the third week in a row, the longest consecutive decline since this year. However, the relatively uncertain prospect of the British economy and inflation has been hindering the overall rebound of British government bonds like that of US bonds.
Chester Ntonifor, strategist of BCA Research, said, "It is too early to long UK gilt edged bonds at the current juncture because inflation in the service sector is still too tight."
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